The slowdown in spending is due in part to the recession and the tepid recovery—but not as much as you’d think. A recent paper by the Harvard economists David Cutler and Nikhil Sahni estimated that the recession explained scarcely more than a third of the spending slowdown. Oddly enough, the public debate over Obamacare has also played a role. Bob Kocher, who was a special assistant for health care in the White House in 2009 and 2010, did a report for Lawrence Summers on the past sixty years of health-care legislation, and found that when Congress seriously considered enacting health-care reform the rate of health-care spending often slowed for a year or two. Just talking about medical costs, it seems, limits medical costs. Kocher, a physician turned venture capitalist (and currently a guest scholar at the Brookings Ins ution), dubs this “the health-care-policy placebo effect.” As he told me, “When you’ve got politicians going around the country making speeches about how out-of-control health-care spending is killing the economy, health-care providers come to feel that it might make sense to be less aggressive in setting prices.”
Both those effects are bound to be temporary. But there’s good reason to think that the moderation of health-care spending will persist, because, according to Jason Yeung, an investor at Morgan Stanley’s Growth Team, we’re beginning to see deeper structural changes in the health-care system. Historically, costs have been hard to contain because most of the players in the system have had no incentive to do so. Hospitals and doctors have typically been paid on a fee-for-service basis: the more things they do, the more money they get. Insured patients have paid only a small fraction of the cost of their care, and insurers have just passed costs along to their customers. Employers and the government, meanwhile, have been left to foot the bill.
“What we’re moving toward instead is a world in which everybody in the system is sharing financial risk,” Yeung told me. “And therefore everybody has an incentive to control costs.”